How does my 401(k) get split in divorce?


By Joshua Stern, Divorce and Family Law Attorney

When dissolving a marriage, dividing your retirement account is one of the many financial decisions you and your spouse will make. Like other wealth and assets, your 401(k) is marital property and will be split during your divorce.

While it can be challenging to determine the exact amounts each spouse will receive, the actual division of a 401(k) is rather easy. Let’s take a closer look at how it works.

How do we divide 401(k)s in a divorce?

Often, the marital portion of a 401(k)—any funds contributed during the marriage—is split equitably. This frequently means a 50/50 split, but it could be divided 60/40, for example, depending on your other assets and what the court determines is fair. There is no preference for the spouse who contributed to the account to keep the majority of it in divorce.

If you, like most people, contributed to a 401(k) both before and after your marriage, we’ll need to determine what portion of your 401(k) is marital property and what portion is non-marital property. To do this, our team will look closely at how much you invested prior to marriage, and how much the investment has grown during the marriage. The remainder will be considered marital property.

The non-marital portion of a retirement account can be determined through a variety of methods, which include:

  • Tracing: Where pre-marital investments can be tracked throughout the marriage, the actual growth on the pre-marital investments can be carved out from the marital portion of the account.
  • Average Return: Where there is some ambiguity as to the marital and non-marital portions of the 401(k), but where the initial pre-marital balance is known, an average rate of return for the pre-marital balance can be used to determine the present value of the pre-marital portion.
  • Hunt Formula: In lieu of the average return approach detailed above, the non-marital portion of a 401(k) may be determined using the Hunt formula (which is most commonly applied to pensions). Specifically, the pre-marital portion could be determined by dividing the number of months the account was funded during the marriage by the total number of months the account was funded. The result will be a multiplier which would indicate what percentage of the account is non-marital. There are a few issues with this approach that go beyond the scope of this post.

Unfortunately, limited documentation and complex and/or numerous trades can complicate the process of identifying the marital and non-marital portions. Identifying the non-marital share of a 401(k) can be challenging, especially if the funds have been commingled or transmuted—but our attorneys at Stern Perkoski Mendez are experts at handling these complex financial situations. We can work with you to determine what is marital property and how much of your 401(k) you get to keep in divorce.

How do we transfer 401(k) funds in a divorce?

The actual transferring of funds from a 401(k) is the easy part. A qualified domestic relations order (QDRO) enables you to take money from one 401(k) and put it in another without early withdrawal or tax penalties. The Employee Retirement Income Security Act (ERISA) permits these tax-free transfers specifically in the event of divorce.

Your attorney or your spouse’s attorney will prepare the QDRO in accordance with how your account is to be split, and then the QDRO will need to be approved by the court. After this is done, you can submit the QDRO to the account holder’s bank to have the funds transferred.

Are there any limitations on splitting our 401(k)s?

Yes. A QDRO is only valid for certain plans—including 401(k)s and pensions—but excludes IRAs. You cannot transfer from a 401(k) to an IRA, or vice versa. If you and your spouse have different types of retirement accounts, one (or both) of you will likely need to open another account.

Transferring between IRAs is even simpler than between 401(k)s—no QDRO is necessary. Instead, you only need a letter of direction. You can write a letter of direction yourself, and simple templates can be found online. Once we’ve determined how the account should be split, you can submit this letter to the account holder’s bank, and they’ll make the transfer.

Contact Our Divorce and Family Law Firm in Evanston, Chicago, Lake Forest and Oak Brook

When dissolving your marriage, you deserve an attorney who understands your unique financial situation—and how hard you’ve worked to invest in your future through your retirement account.

If you’re in need of a divorce lawyer to navigate complex finances, request a free consultation or call us at (847) 868-9584. We will happily meet with you at our offices in Evanston, Chicago, Lake Forest and Oak Brook, or at another location.

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For a free consultation, call Stern Perkoski Mendez at (847) 868-9584 or contact us.